Credit And Lending Solutions

CREDIT AND LENDING

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
QUESTION 2...................................................................................................................................3
QUESTION 3...................................................................................................................................4
QUESTION 4...................................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
Credit means to give purchase things at present at pay the price at some future date. In
context of the banking regulation it is defined as to lend money to the parties or client of the
bank after taking into some securities and deposited against that money landed. In the present
report a bank is being advised on whether it should land a loan of $30,000,000 to a construction
company for building a five star hotel near a beach. Detailed report is presented on inherited risk
related with the risk and recommendations are also provided to the bank for the extent of
financial involvement in the proposed project.
QUESTION 1
Background
This paper is presented for fulfilling requirements of the MBA (Chartered Banker)
program Bangor Business School, University of Bangor, UK. The scope of study is to answer
four questions presented in module.
Methodology-
The project is completed by taking into account all the relevant magazines, study packs,
text books, journals and related reliable sources.
CREDIT MEMORANDUM
To: Management Credit Committee
From: Relationship Manager
Date: 12th December 2018
Subject: In Approval for lending loan
Introduction
Loan syndication is to be provided regarding secured construction
loan totalling $30,000,000 for constructing five-star luxury hotel at a beach area distance within
15 minutes ravelling time from Nassau (Bluhm, Overbeck and Wagner, 2016). Cable Beach
Hotel is to be constructed and developer will be local firm Consultancy (PVT) Limited hired on
contract basis. This means that loan will be sanctioned in accordance to performance of
company.
Character and Ability
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The firm is prestigious architects in Nassau and investigation regarding loan is to be
provided whether bank should approve loan or not. The competitive advantage of firm is high
standards and quality of work. The active involvement of developer would be required so as to
develop loan amount in effectual manner.
Purpose and Amount
Main purpose of company is to construct project comprising 253 bed, five-star hotel
located on the beach in effective manner which will enhance customer satisfaction. The
developer has been granted lease to a land by the government (Ongena, Schindele and Vonnák,
2017). The initial rent is $8,560 in the first year, rising to $15,360 in the twentieth year. The
developer has identified good demand of luxury class resort-based hotel and is dominated by 62
% of US travellers. For accomplishing this, amount of loan $30,000,000 is needed. The
financials of company reveals that hotel will have good growth rate. This is evident from the fact
that total revenue will be 17568 in 2019, increased to 21622 in 2020. Followed by it, figure will
reach 22065 in next year and further maximise to 25510 in 2022, The sales will also elevate in
2023 to 29378 and 30931 in next period and will reach to 32389 in 2025. The net income is
steady but it would be difficult bank to provide loan amount as higher construction cost will be
required which will be approximately $41,000,000 purely for construction of Cable Beach Hotel.
Repayment Capacity
The bank facilities are to be served through the operating income. The Debt Service
Coverage ratio of the firm is on an average more than 1.20 and will reach to 1.92 at the end of
2025. Sales are gone up but profitability has not much increased as operating expenses are
incurred in higher manner. Moreover, liquidity position is moderate of firm.
Securities
Bank has different security options and most appropriate one will be chosen when final
approval will be met out (Cingano, Manares and Sette, 2016). It can be analysed that securities
are to be mortgaged so that bank safety may be carried out in a better manner. This will provide
bank with higher safety and in case of default of loan, bank can sell-off mortgaged assets for
recovering amount in the best manner possible. Movable and immovable assets both could be
chosen for supporting the collateral and as a result, security can be attained in a better manner.
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